Investors expect the US economy to show a strong growth in the coming months, thus allowing the Fed to raise its interest rate. Key Fed officials suggest that a rate hike will happen before the year is out.
On the contrary, export-oriented Japanese economy needs loose monetary policy and the weak national currency. If at the forthcoming meeting, due 28 October, the Fed keeps interest rate unchanged, the Bank of Japan will be more likely to ease its monetary policy. Despite of the fact that Japanese economy is showing signs of recovery, the country’s inflation remains notably below the target level of 2.0%.
Support and resistance
The USD/JPY pair returned to the range between the levels of 120.60 (ЕМА144 and 61.8% Fibonacci) and 119.60 (ЕМА200 on the daily chart), where it has been trading since the beginning of September. Last week, the price failed to breakdown the strong support level of 118.85 (ЕМА50 on the weekly chart).
OsMA and Stochastic on the daily chart recommend long positions, while on the 4-hour chart the indicators are giving sell signals.
In the current situation, fundamental factors are likely to determine where the price will go, thus, until the Fed and the Bank of Japan meetings, due 27-28 and 30 October, respectively, the pair should remain at the levels of 119.60, 120.60.
Support levels: 117.00, 117.40, 118.00, 118.85.
Resistance levels: 119.60, 120.00, 120.15, 120.60.
Long positions can be opened after the breakout of the level of 119.65 with targets at 120.10, 120.60 and stop-loss at 119.20.
Short positions can be opened from the level of 119.00 with targets at 118.40, 117.80 and stop-loss at 119.30.